[ gavel ] >> hello and welcome to the regular budget and finance committee. my name is carmen chu, chair of the committee and joined by supervisor avalos, vice-chair and supervisor kim will not be joining us this afternoon, this morning. and our clerk today is mr. victor young. do we have a motion to excuse supervisor kim? she has a health appointment

and we'll do that without objection. mr. young do you have any announcements? >> yes, please science all cell phones and electronic devices. any documents to be included as part of the testimony should be submitted to clerk. items acted upon today will be appear on the january 29th brzagenda unless otherwise stated >> thank you, could you call items 1 and 2. >> item 1,resolution approving a lease agreement between the city and county of san francisco and the city of san francisco japan center garage corporation for the japan center public parking garage with an initial term of 10 years and two 5-year options. item 2 lease resolution approving a lease agreement between the city and county of san francisco and the uptown parking corporation for the

sutter stockton public parking garage. >> good morning, steve lee with sfmta. the two items before you one is a lease for the japan center garage with the japan center garage corporation. and a lease with the uptown parking corporation for the sutter stockton garage. both of the general terms for both leases are essentially the same. they are 10-year leases for $1 and they both have two 5-year options to extend. a provision of termination for cause with a 90-day notice. both leases are updated to incorporate new provisions and that include sfmta facilities and management regulations, corporation employee hiring guidelines, and a change in the capital set aside from a percentage net income to an annual fixed amount. the japan center garage totaled 920 spaces and generates $4.2

million annually and accommodates 500,000 transient vehicles. the sutter stockton garage is 1 865 spaces on 12 levels. this garage generated l12.8 million annually and accommodated 500,000 transient vehicles annually. the japan center garage corporation lease, the current lease was entered into in 2002. the current lease expires in 2017. so that corporation technically is not obligated to enter into a new lease, but i think this demonstrates their desire to work with the city and strong desire to continue to represent the community. the sutter stockton garage lease, because the sfmta issued

bonds in july of 2012 and essentially paid off the debt that the corporation issued for the renovation of the union square plaza, we paid off that debt under a provision that allowed to us buy back that debt. that triggered a termination of the lease within 90 days. so with that, i am happy to answer any questions. >> would you go also and explain the second item? >> the second item is the sutter stockton garage lease with the uptown parking corporation. as a 10-year lease for $1 with two 5-year options to extend. it also has a termination clause for convenience with a 90-day notice. and as stated the sutter stockton garage totals 1865

spaces on 12 levels and generated gross revenue of $12.3 million and accommodates over a million transient parkers annually. the uptown parking corporation was originally formed in 1956 for the construction of the sutter stockton garage. in 2002, the corporation entered into a lease with the city to issue bonds for the construction or renovation of the union square plaza. totaling, i believe, $19 million. the mta issued bonds in july and paid off $15.9 million of that debt. requiring that the corporation vacate the premises. the corporation has expressed their desire to continue a lease with the city. and with that, we are due to approve the proposed leases. >> thank you very much. i did have a few questions on

the japan item. i believe there was previously a balance of $2 million many capital funds for that structure and that looks like that was liquidated to the mta. can you explain what happened there? >> well, japan center currently was not given to the city yet. it currently has $2 million in its capital fund. through the capital set aside of 25% of net income. that balance would be transferred to the city should we enter into this lease. >> for what purpose? >> it would support mta operating costs. >> so that money was originally set aside for the japan town garage for capital improvements, but will be liquidated to the mta for operations? >> that is correct. >> the money was originally set aside to deal with capital improvements, but now it's swept for another purpose?

was there an analysis completed that there is no capital repair work necessary there? >> yes. the mta bond issuance was for the purpose of capital improvements citywide in terms of garages. the japan center garage will be included into that improvement plan. improvements would be garage would occur when we issue subsequent bonds. there is a provision that would commence with the capital set aside in the 4th year of the initial term. to set aside a set amount for future capital needs of this garage as well. >> right. i understand that process. i supposed i'm just wondering there was $2 million that was set aside as a percentage that was indicated for capital improvements for the garage. since that time it's not been used, it looks like and the question is was there no improvements that were necessary? what is going on?

and why would we sweep that to operations as opposed to leaving it for capital? >> each of the garages historickally has had a capital set aside and those funds have been used for painting, electrical updates. so they are not really capital, but operating maintenance that we use them for and given the fact that we're using the bond proceeds to improve the capital infrastructure, those garages no longer need those funds for a certain period because we're using the bond funds to do those capital improvements. so for a certain period those funds will not be needed by the guard because the bond funds are going to be used. so the funds are coming back to the mta. they were budgeted in the mta operating budget already to help fund the garage operations within the mta. is that clear? >> it is though for the improvements or the revenue that is generated from the bonds is any going to japan center?

>> each garage will get something depending on their capital needs. so funds are going to all the garages from the bond proceeds. >> and of the $5 million that is being allocated, it's the same for both of these two contracts? it looks like of the $5 million in assessments for the study that is going to be conducted that that has been allocated to each of the garages? >> that is correct. so the bond proceeds and the debt service for the garage are allocated to each individual garage based on the need. the l5 million is being used with the work order with dpw to do the assessment right now. and then we're going to come back in a couple of months to approve the next bond cycle. and that study is informing the next bond cycle as to what actual projects will be done in the parking facilities. >> thank you. and before we go to the budget analyst's report, i had one more structural question about the way it's written. right now for both of those two leases, for the japan center garage it requires a $450,000

amount beginning in year 4 and it's $550,000 for the uptown. >> when we issued the bonds for the capital improvements agency-wide or citywide to all of the garages that will take care of the immediate needs of the garage and the set asides would ensure that we have sufficient funds to carry on beyond that time. in terms of capital improvements to the grapes of wraths in say, year 5 or 6 of the year. >> of the $43 million, $5 million is being utilized for the assessment? >> right. >> it is is $19 million to take out old debt? >> how much is actually going into capital, i guess?

>> $43 million is new money. $5 million for garages and rest for muni for the first issue. and the second issue that this is a series a that was already issued. so the second -- so there was a series a and series b is new money. the $5 million is part of the new money piece in series b and $42 million is series a. >> series a for all existing bond and the $43 million, $5 is going to the garages for an assessment and not necessarily for capital and everything else is going to muni? >> correct. >> so i guess the question, when we had the conversation around the $2 million and the sweeping of those funds the answer i received was the bonds are going to pay for a certain amount of capital improvements. did that come from a? >> it came from b. so basically what we did was we

came to you to get approval for the defeesment piece and new money. we're going to come back with the 2013 series and we're going to use whatever the assessment determines for each garage to issue new bond proceeds for actual improvements to each individual garage. >> i see so the funding that would be available to the garages for capital improvement doesn't happen until 2013 issuance? >> that is right. next several months we'll be back in front of you, hopefully. >> thank you. why don't we go to the budget analyst says report. >> madame chair and supervisor avalos, on page 4 of our report we point out that as shown in table 1 and that is on page 5 of our report. the fiscal year 2013-14 japan center garage budget and that is the first '13-14 is the first full-year budget under

this proposed lease and results in estimated net revenues to sfmta of $1359 million. and then on page 5 of our report. as the committee just discussed the $2 million of the japan center garage corporation capital improvement account to the sfmta to support sfmta operating expenditures. we also note on the bottom of page 5, that the management fees or the management costs of the japan center garage corporation of $319,000 in '13-14 is 11.4% of the expenditure budget of about $2.8 million. and the sfmta has explained that these management costs

allocated to the japan center garage of 11.4% to the next item of the sutter stockton garage are significantly higher because the uptown parking corporation's management costs are distributed between the sutter stockton garage and the union square garage as the union square garage as you know is not before you. as it they have two garages there some economy efficiency there. one. and secondly, it is reported that the japan center garage corporation with its validation program is a more complex operation. so for that reason, the 11% in this first item significantly is the 2.8% in the second item. we also point out on page 6 of our report on june 9th, 2011 the controller's office issued

a report that "leasing garages to non-profit corporations is unnecessarily costly to the city." so given the controller's june 9th, 2011 report findings and that the japan center garage corporation would be would on only one of the two remaining non-profit operations that continues in its current role of operating the city-owned garages on behalf of the sfmta and the board oversight is difficult to quantify, we consider approval of the proposed resolution to be a policy decision for the board of supervisors. as a matter of fact supervisors i have a report that i believe will be scheduled next week for the ellis-o'farrell garage and to terminate that lease as again the sfmta thinks it is not needed. that they can handle it themselves and save money. so for those reasons, we say that

this is a policy matter for the board. >> mr. rose, just to clarify from what you just said recently, from my understanding there are a number of garages that are under mta's jurisdiction. a number of them had a non-profit sort of intermediary in the past and the reason for that and the reason why the city entered into that sort of structure was because the city wasn't able to bond orboro money to be able to make improvements to the garages in past? >> that is exactly right. >> obvious the bonds were paid off, there were provisions, i think in some of the contracts that indicated once the bonds are completely paid off or paid in a pre-payment situation, that those organizations would dissolve. but there was in at least item no. 2 sort of an amendment to that clause. does that sound right? >> i don't recall, supervisor, the exact language in the

agreements as to whether or not they were required or they would continue. but the bottom line is as i understand from the controller's report, that if you take a look at this situation of these non-profits, the question can be raised why do we need these non-profits to provide "management oversight?" the garages themselves are being operated by parking operators, that are retained by these non-profits. so the question is cot mta do the same job that the over -- that these non-profit corporations are providing at a reduced cost? and, in fact, as i say in the item that i'm reviewing for next week's -- potentially on next week's budget and finance committee the legislation is to terminate the lease with the

ellis-o'farrell corporation because there is no need for that corporation to continue this oversight. if you look at muni's budget, which is -- i don't know what the total budge at muni. it's hundreds of millions of dollars. i don't know the exact amount of. we're not talking about incremental costs for this oversight. the oversight costs are minimal. so i don't see a budget increase for the sfmta budget by taking over this oversight responsibility:on the other hand these leases have continued for years and years and that is why we, of course, defer to the board in making a final design as to whether or not continue with the non-profit organizations. >> there are similar structures with the mta that are now going to be terminated, it sounds like. >> exactly.

exactly right. >> thank you. i know that there were audits that were conducted in the past with regards to the parking garages. and i wonder if the controller's office might speak a little bit to it? they spoke about the desire to have mta take a look at some of the structures and whether they were something that should continue moving forward? and there was also, i think, a specific audit to the japan center garage as well that had a number of findings that the mta generally concurred with. could you speak to some of the items that were covered there? >> good morning, supervisors,. we touched on a number of operations in department. madame chair you are referencing related to japan center garage specifically, we do have an ongoing compliance audit program with the mta.

where we review revenue collections and kind of day-to-day operations and management at each of these concessions within the department. we do that on a rovingpation basis. so any given moment of time and any given fiscal year we're doing a revenue compliance audit, in essence, with one of the garages. we do typically have findings as you do in audits, regarding departments' compliance -- or the contractor's compliance with basic policies and procedures. the mta has typically concured with those findings and has worked to remedy those kind of more operational or day-to-day issues that we discover as part of the ongoing organizations. the government oversight committee of the board of supervisors has been holding regular hearings on their efforts to come into compliance with the more routine issues. the audit that mr. rose references in his report

pertains to a broader audit that we performed a couple of years ago, the sustainable streets division of the mta. which at the time and i believe currently is the division within the mta that is responsible for management of garages. and mr. rose correctly summarized our general findings here, which are that this structure that we're using in the city for some, but not all of our garages, is unusual in state. so we have reviewed other major jurisdictions in the state and this kind of use of non-profit corporations for purposes of administering private contracts between the city and a private operator is not a mechanism that you see in los angeles, san diego, or other major jurisdictions in the state. we do believe it adds unnecessary administrative expense; which are redundant with some processes and functions that already exist

within the mta. in aggregate we estimated this adds $550,000 for the mta. this structure does date, as you indicated, madame chair to, a time when non-profit corporations were established for the purposes of issuing bonds that were used to construct these garages. in a number of cases those bonds are now paid off and we have discontinued the corporation that was really there for a financing purpose. the civic center garage being an example, right across the street here. but in other cases they persist. and we did recommend in the audit that the mta do a thorough cost-benefit review in essence, of the continued added value of these corporations, as the debt is paid off.

i would be happy to answer questions related to these. >> thank you to the mta. >> chairperson chu, steve lee. >> it sounds like the mta concurred with the findings and was working to resolve the issues, but on the larger issue about whether or not this financial structure is still one that ought to continue moving forward. it appears that the mta is applying the policy very differently. and so in two structures they are dissolving of that original non-profit intermediary structure and two, recommending to move forward. can you explain what your board's rationale was for having an inconsistent application? >> supervisor, in addition, to the non-profit, the mta currently has in existence we have portsmith garage run by

the rec and park department. so actually five non-profits existed as part, that we looked at as part of the inwinding of the bonds. what the mta board requested to do to go to the four non-profits that we oversee and have a [pha-ults/] discuss with each of the non-profits to see where they were in terms of unwining and serving in an advisory capacity. two of the non-profits choose to unwind their corporate structure and serve in the advisory capacity and that is ellis-o'farrell and 5th and mission. the two other before you today, the board wanted to continue in a lease structure and basically mta's direction to take leadership from the corporation's desire. that is what we did. so we came back to the mta board and advised them of that fact and they endorsed these two leases to continue. understanding the non-profit corporation's board desire to continue. >> was there according to the

audit recommendation a cost-benefit analysis that was conducted that informed the commissioners when they made this decision? >> a cost-benefit analysis has been completed, but only from an operational perspective. i think what is missing is the indirect community benefits and the marketion and the relationship side of the house of the nonprofits have with individual businesses. that part of the oversight has not been quantified. and we hope in the coming year, as part of the review of these new leases, that we would look at that and try to quantify that piece. because mta doesn't do any marketing or outreach for the non-profit garages. the corporations do. so if we were to take it in-house, not only would we have to operate the garages we would have to have some sort of marketing and outreach and communication effort that we have never done before that has not been quantified. >> is there any reason to believe that the mta wouldn't be able to administer these

garages? >> no, we have -- most of the garages we administer. so there won't be much incremental administrative cost, but the marketing and communication costs with the local businesses that we with would have to evaluate that we haven't done. >> i think in one respect having the input of the businesss is absolutely important because it's what helps to have the businesses to continue have to customers come through who are able to park and shop and frequent those businesses. so i understand that connection. would it be difficult to create something similar to an advisory body that would be able to serve the same purpose? >> absolutely not. that is what 5th and miss and ellis and o'farrell will be doing soon. the unwinding the leases and corporations and the creation of a new advisory board that will serve only in an advisory capacity >> for the two other structures where they are unwinding that financial relationship, you are maintaining an advisory body? >> that is what they would

like to do. yes. >> okay. thank you. if there are no questions at this time i would like to open public comment for these two items. items 1 and 2. i do have a number of speakers who are here. [ reading speakers' names ] as you come up, please indicate which item you are up for, 1 or 2. >> good morning supervisors, my name is answeron lee, the corporate manager for the uptown parking corporation, overseeing the sutter stockton garage, as well as the union square garage. i have been serving as the corporate manager for the corporation for over eight years now. i have been doing sort of a non-profit corporate management status for over 12 years in the downtown area. and actually was hired going

way back, about 25 plus years of parking operation parking management experience. in doing so, when i was first brought on board with the non-profit, it sort of really enlightened me. it wasn't just about the revenues generated with every car and how we as operators look at it as far as just driving the basics,. if you look at, it private garages may look at it that way. i have learned working with my non-profit group and i have been involved with community benefit districts since i have been on board with the non-profits of really serving the community. you know, these garages and these communities at these locations really serve a diverse amount. i have learned with the different aspectss in really getting to know the locations that i serve. for example,

1865 parking spaces at sutter stockton, 12 stories. however, we have a very different sort of clientele as what we serve at union square with about half the capacity. and we do what we can to really have the oversight of what really serves our community? we have probably a 30% drop in transient volume over the span that i have seen. and it's various reasons, you know? be it traffic, be it the office, financial community. because really 40-50% of the patrons are not necessarily shoppers. then we have the 3-4-hour stay of shopping and dining and what not. so a lot of different aspects we do bring in and with the comments and support of the non-profit corporations, really understands the community. i think that management oversight is very vital